The Qantas Airways Ltd (ASX: QAN) share price closed down 2.5% on Thursday.
Shares in the S&P/ASX 200 Index (ASX: XJO) airline stock finished the day trading for $6.35 apiece.
But even with that retrace, the Qantas share price continues to outperform the ASX 200 in 2023, up 7% compared to a 4% gain posted by the benchmark index.
The flying kangaroo has been buoyed by a rebound in travel demand, fuelled by pent up demand following years of pandemic border closures.
ASX 200 investors have also been attracted by the company's recently reported strong half-year results.
Qantas revenue over the six months surged 222% year on year to $9.9 billion. The airline also returned to profit, reporting a net profit of $1.4 billion. That helped to reduce net debt by $2.4 billion.
But could the Qantas share price be in for some headwinds amid massive planned expenditures to renew its ageing fleet of aircraft?
Image source: Getty Images
299 new airplanes over the next decade
According to UBS the average age of Qantas airplanes has reached 13.6 years. Meaning a lot of the aircraft are due for renewal.
Qantas expects to purchase 299 new airplanes over the coming decade. And UBS puts a price tag of just over $12 billion on the renewal plan over the next five years.
That's no chump change.
And it has some analysts wondering if the Qantas share price could come under pressure if the company can no longer fund share buybacks or return to dividend payments, which have been suspended since 2020.
Newly appointed CEO Vanessa Hudson expressed confidence the airline can do both.
According to Hudson (courtesy of The Australian Financial Review), "Not only can we afford the capital expenditure that is coming, but we can also continue to reward our shareholders through the cycle."
Managing director at White Funds Management Angus Gluskie pointed to the potential for increased risk for the Qantas share price down the road.
According to Gluskie (quoted by the AFR):
Any large capital expenditure program like that increases the risk into the future. As they embark on that program, they are running the risks that if there is a downturn in the market they may have over committed and lose any flexibility in being able to adjust.
However, he noted this as a "normal business risk", adding that the new airplanes would improve the airline's product line.
Citi analyst Samuel Seow said he expects Qantas should be able to fund its new aircraft while still engaging in buybacks and potentially returning to dividend payouts.
According to Seow:
While the cost of the renewal is material, at the end of the day, Qantas can flex the order to align with earnings. In particular, the airline has the ability to scale up or down the number of planes it receives per year and spread the renewal over an extended timeframe.
Additionally, the majority of the cash is only required to be paid on delivery of the plane, and terms were agreed before the rise in narrow body prices.
Qantas share price snapshot
The Qantas share price is up 12% over the past 12 months, handily beating the 2% loss posted by the ASX 200 over that same time.
